Hey Founder, do you know how to manage your cap table?

Cap Table - Part 2

You now know what is a cap table...but what do you do with it and how do you manage it?

Founders must keep good records. This may sound obvious, but when busy building a startup, many founders let the paperwork fall by the wayside. Each time a startup does a financing, the new investors will want to know the current ownership structure and the terms of previous financings, so founders need to have this information on hand and up-to-date. Many funding rounds have been delayed due to the sloppy record keeping. While you will use lawyers for the financing, it is good practice to be organized yourself.

Here are some good practices to follow:

• Update your cap table to reflect all new ownership interests, new valuation, and new share issues.

• Many founders do not know that the cap table is not just a spreadsheet. It is a living breathing document that MUST MATCH the ownership information at Companies House. When you make any ownership or option pool changes, your lawyer or finance director needs to make the corresponding filings with Companies House. Be sure to double check after each filing to ensure the information matches.

• Sign and distribute ownership interest documents. Confirm that you have the final legal documents FULLY countersigned.

• Make sure your investors receive final legal documents.

• Keep a secure electronic file with subfolders for each financing event. Include the term sheets, final copy of the version of the cap table after the financing (your cap table will continue to evolve so you should keep this snapshot in time for your records), investor suitability questionnaires, shareholder rights agreements, copies of the Companies House filings, and all other legal documents.

Keep an eye on the next two posts with a crash course in financing terminology and the different types of securities and share types.